Kyowa Leather Cloth Co Ltd (3553:TYO): A Promising Analysis of Investing in Japanese Leather

KYOWA LEATHER CLOTH CO., LTD. is a Japan-based company that has been active since 1935. It is mainly engaged in the manufacture and sale of various leather products, such as car interiors, wall coverings, home furnishings, footwear and industry.

Kyowa is trading at an attractive price of 9.4 times earnings, 0.83 times tangible book value and 0.5 times sales. The dividend is not far behind, with a generous yield of 3.3%, despite a payout ratio of only 31%! The dividend has actually grown over the last five years at a staggering rate of 45% per year! Of course, such a rate is not sustainable in the long term, but if we look at the dividend growth rate over the last ten years, it is still 13.5%.

This consistent and significant dividend growth over the long term demonstrates the strength of Kyowa's business model, as well as the wisdom and pro-shareholder behavior of the company's Board of Directors. This is also reflected in the growth in asset values, earnings and cash reserves. The company is gaining value over the long term from a fundamental perspective and this is reflected in the share price.

Cash reserves are comfortable, with a current ratio of 1.67 (up) and a liquidity ratio of 1.4. This allows the company to meet its current financial obligations without any problems. These reserves are sufficient, but not too large, which could represent a waste of resources.

Gross margin is up, at 20.9%, return on assets is also up, at 5.3%, the debt ratio is down, at only 0.35% and the number of shares outstanding is stable. In short... it's solid. When you think that this Japanese company went through the 2nd World War, with two nuclear attacks (Hiroshima and Nagasaki), you think that we have what it takes to see it coming... even if Kim Jong and Trump play the fools.

But beyond these military-political considerations, Kyowa works in a sector that is perhaps not very sexy (although leather in some role-playing games can be!), but rather defensive (this is confirmed with a beta of only 0.5). The company's long history speaks for itself. It's a bit like the kind of stock you can buy today and leave for a desert island without worrying about it anymore.

I believe that Kyowa's share price can double or almost double in the next few years and that the dividend will do at least as well.

So I bought Kyowa last week.